Rethinking the Jones Act

Just over a month ago, Hurricane Maria ravaged the U.S. territory of Puerto Rico as a Category 4 storm with 150 mile-per hour winds. The storm was so intense it created a full-scale humanitarian crisis on the island, knocking out more than 80% of the territory’s power transmission lines.

It left a significant portion of the island’s 3.4 million citizens without access to food and water, and doing $50 billion to $90 of billion in overall damage – a number likely to rise.

Some have criticized the Trump Administration for being too slow in providing emergency aid and humanitarian relief to Puerto Rico in the aftermath of the storm, suggesting that the Administration was indifferent to and unprepared for the enormity of the damage.

In reality, there is plenty of blame to go around. From a lack of proactive requests by Puerto Rican officials for aid and cooperation from other states prior to the storm’s arrival, to the inadequate state of the island’s bankrupt power utility which is further limiting the speed of restoration, to the obviously overwhelmed and overworked FEMA staff that was already responding to Hurricane Harvey and Irma damage in Texas and Florida, there were countless factors at play.

But while many of these hindrances are now being addressed and overcome to speed up and increase relief to the island, there is one additional culprit that continues to restrict the people of Puerto Rico from receiving additional aid it desperately needs – the Jones Act.

Passed in 1920, on the heels of World War I, the Merchant Marine Act or Jones Act was deemed by Congress as “necessary for the national defense and for the proper growth of its [the United States’] foreign and domestic commerce.” At the time, there was considerable concern not only over foreign vessels entering U.S. ports, but from allowing them to transport goods between U.S. ports. Accordingly, the Jones Act was passed to prevent foreign-built, or foreign-flagged, ships from transporting goods between U.S. mainland ports and select noncontiguous locations including Hawaii, Alaska, and of course Puerto Rico.

Proponents of the Jones Act argue that its importance lies beyond just the physical security of our ports, because the mandate to use U.S. made ships keeps our shipbuilding industry healthy and better prepared in the event that a wartime production ramp up is necessary.

Yet while the Act may be a boon to the U.S. commercial shipbuilding industry, and its unionized workforce that defends it so vociferously, it’s the American public that ends up paying the price. As an example, a 2012 study by the Federal Reserve Bank of New York found it cost more than double to ship a standard container of household goods from the East Coast to Puerto Rico than it does to send the same shipment from Santo Domingo. They further suggested that Puerto Rico has suffered from the lost opportunity of becoming a regional economic player as the Jones Act restrictions “may put the Port of Ponce at a competitive disadvantage in its potential role as a major trans-shipment port.”

While Puerto Rico has suffered because of the Jones Act, it has made its own share of poor financial decisions in recent decades – racking up more than $70 billion in public-sector debt, owing $50 billion more to pension funds, and failing repeatedly to make the constructive and painful sacrifices necessary to get itself out of the hole. Yet with a median household income of $19,350 ($41,371 in Arkansas), a poverty rate of 43.5% (17.2%) and an unemployment rate of 10.1% (3.5%), the economic situation on the ground is already dire.

It’s even worse when you consider that the cost of basic goods and services are noticeably higher in Puerto Rico than on the mainland U.S., with supermarket items averaging 21% more and energy costs 250% higher. Restricting Puerto Rico’s ability to trade freely and grow economically only exacerbates their other financial problems and increases the burden that could eventually be borne by U.S. taxpayers.

Ceding to tremendous public and Congressional pressure, President Donald Trump finally made the decision to declare a 10-day waiver of the Jones Act restrictions for Puerto Rico effective Sept, 28. However, with such a limited amount of time to not only initiate commercial shipments but also complete them, it’s hard to see how that brief of a reprieve could have measurably aided the recovery.

The fact is, to have a real and lasting impact on Puerto Rican relief efforts (not to mention overall economic wellbeing of the island), a long-term suspension or repeal of the Jones Act is required, which unlike most things in Washington has support from both Republicans and Democrats. U.S. Sen. John McCain, R-Ariz., has long been a critic of the law, arguing that it’s “an archaic and burdensome law that hinders free trade, stifles the economy, and ultimately harms consumers.” Brian Riley, a policy analyst with the conservative Heritage Foundation, has been more direct, writing in 2016 that “The Jones Act is not about protecting U.S. citizens from foreign threats. It’s about protecting a politically connected industry from competition.”

The truth is that the Jones Act is the antithesis of free trade. As noted earlier, Congress made clear when they passed the law in 1920 that its intent was two-fold, to provide for national security and to grow “domestic commerce.” If the Jones Act restrictions are truly needed today to preserve our national security, that’s one thing. But if its only real remaining purpose is to bolster the U.S. shipbuilding industry at the expense of U.S. taxpayers and consumers in Puerto Rico, Alaska, Hawaii, then it’s time to recognize it for the protectionism that it really is.

As Puerto Rico and its citizens continue down the slow road to recovery, repealing the Jones Act could make that long and arduous trek a little less challenging.
––––––––––––––––––––Editor’s note: Robert Coon is a partner with Impact Management Group, a government relations and communications firm. Opinions, commentary and other essays posted in this space are wholly the view of the author(s). They may not represent the opinion of the owners of Talk Business & Politics.